'First Sale Rule' determining transaction value of imported goods, ITC
Approximately 2.4 percent of total U.S. imports during a recent period were valued using the "first sale rule" in determining the transaction value of imported goods, reports the U.S. International Trade Commission (USITC) in its report Use of the "First Sale Rule" for Customs Valuation of U.S. Imports.
The USITC, an independent, nonpartisan, factfinding federal agency, recently concluded a review of the "first sale rule" as required by the Food, Conservation, and Energy Act of 2008. The report was submitted to the U.S. House of Representatives' Committee on Ways and Means and the U.S. Senate's Committee on Finance on December 23, 2009.
The "first sale rule" can be used to determine the transaction value of imported goods in certain circumstances. An item that is imported into the United States may have been subject to several transactions, with each interim buyer adding to the ultimate price paid by the U.S. importer. Current law allows U.S. importers, under certain conditions, to base the valuation of a product entering the United States on the first or earlier sale in a series of transactions, rather than the last one. For example, an item may be produced in China, sold to a middleman in Hong Kong, and in turn sold to a buyer/importer in Los Angeles; the "first sale rule" would allow the U.S. importer to declare the product's value, for import duty purposes, as the price of the original China-Hong Kong transaction.
As required by the legislation, the USITC provided data regarding the frequency and value of "first sale" using tariff and sector classifications, based on data provided by U.S. Customs and Border Protection. Highlights of the report follow.
• Over the 12-month period investigated, from September 1, 2008, to August 31, 2009, a total of 23,520 unique importing entities reported using the "first sale rule." These account for 8.5 percent of all U.S. importing entities.
• In terms of import value, of the $1.63 trillion in total U.S. imports over the period, $38.5 billion was imported using the "first sale rule," or about 2.4 percent of total U.S. imports. Another indication of frequency is that importing entities used the "first sale rule" on average in 2.9 different months during the year, although no information is available on the average number of shipments imported using the rule.
• "First sale" use is not always associated with high tariffs. For example, importers reported using "first sale" when no duties would ordinarily be paid. These include approximately $8.1 billion of imports from Canada, Mexico, and the U.S. Virgin Islands, accounting for 21 percent of all "first sale" imports. There are also numerous cases of "first sale" use for products that are unconditionally free of duty from all countries with normal trade relations status. It is unclear how or why "first sale" is being used in these instances. Although no data are available on the total number of pre-import transactions, it is possible that some importers may have reported "first sale" use in situations where there was only a single sale.